SA start-up Xineoh gets R21m cash injection
South African artificial intelligence (AI) start-up, Xineoh, has concluded a second round of equity deals worth $1.5 million (R21 million).
Xineoh is a local technology company specialising in AI and machine learning. Founded in 2014, the start-up developed a platform for predicting consumer behaviour with AI, allowing clients to out-predict their competition, and maximise business efficiency and customer satisfaction.
The company says the funding round, concluded in late 2018 and early 2019, was oversubscribed within weeks and attracted heavyweight investors, including Wade Flemons, a seasoned investment banker, private equity MD and entrepreneur from Canada. Flemons is founder of private equity firm, Pender West, but invested in his personal capacity.
Xineoh CEO Vian Chinner says SA has a small formal tech start-up scene and thin capital markets.
"It has been difficult for start-ups to get funding and to establish a Silicon Valley-type ecosystem in South Africa. To date, we've experienced a self-reinforcing cycle of limited venture capital and therefore limited start-ups, and vice versa," Chinner says.
But he says this may be changing because in 2018 the sector in SA concluded venture capital deals worth $89.3 million (R1.25 billion). This compared to deals worth $14.7 million (R206 million) in 2017, signalling a positive shift in sentiment.
"I believe the interest from investors such as Flemons could open the floodgates for local tech start-ups to receive greater interest from foreign investors. We may be breaking new ground now, and venture capital, which has been relatively risk-averse in the past, may be more open to investing in local start-ups," he adds.
Xineoh previously raised $2 million (R28 million) in 2017 through offshore venture capital when it was still a small Bloemfontein-based start-up. Now the company is based in Johannesburg and has clients headquartered in the US and Poland, as well as listed organisations based in Cape Town, Johannesburg and Durban.
Chinner says the past capital raise is likely to be the last venture round for Xineoh, which is "close to being cash-flow positive".
He says SA's need for various tech services is growing.
"It is impractical to get everything out of Silicon Valley. Something like AI requires some degree of consultation with the client. It is difficult to get this type of service from an operation that is a 27-hour flight away."
Data scientist dearth
Chinner told ITWeb that plans for the additional funding include growing the company's engineering team, but that finding quality data scientists is difficult.
"With most of our engineering team having worked on significant projects in Silicon Valley, we've set the bar high for any new additions to the team. By way of example, out of the 26 PhDs that applied for a data scientist position at Xineoh in 2018, only 12 made it through to the first-round interview, and unfortunately, not a single candidate was able to pass the technical assessment to get through to the next round."
He says businesses throughout the world are facing the significant challenge of accessing high quality data scientists.
"Depending on what estimates you use, there are approximately only between 5 000 and 22 000 data scientists who can operate at the necessary scale and proficiency to deliver relevant, practical value to medium to large organisations.
"As a result, we have alleviated this challenge for our clients by giving them access to a world-class, cutting-edge artificial intelligence solution that can deliver meaningful results fast. To achieve the same level of value, it would generally take organisations anywhere between six to 18 months to build the necessary team and solution, without any guarantee on the level of performance," he says.
"Our algorithm is developed to work with almost any type of raw customer interaction data and leverages a cutting-edge Deep Neural Net approach to deliver more efficient results within weeks as opposed to months," Chinner explains.
He says the group also plans to explore an opportunity to expand its operational base in Canada, "opening up new opportunities for our team and servicing our North American client base".
"We're about to announce a partnership with one of SA's most iconic hospitality brands," he adds.
After the recent funding round, Xineoh added two members to its advisory team: Hans Hawinkels, who is former CEO of Naspers' interests in Asia; and Abdul Ismail, former CEO of MTN Zambia.
Xineoh also recently appointed two new board members: Alan Keet, former CEO of Grand Parade Investments; and Xen Lategan, former CTO of NewsCorp in the UK, and is looking to expand its employee base significantly in 2019.